Acquisitions pay off for BAT

Johannesburg - British American Tobacco (BTI) said on Wednesday in an interim management statement that it performed well in the nine months to the end of September, although total volume growth slowed.

The group said that revenue for the nine months grew strongly in constant currency terms, driven by the continued good pricing momentum and volume growth from the acquisitions made in the middle of last year (Skandinavisk Tobakskompagni (ST) in Denmark and Tekel in Turkey), as well as the acquisition of PT Bentoel Internasional Investama Tbk (Bentoel) in Indonesia on June 17, 2009.

"All regions contributed to this good result. Revenue benefited further from the favourable impact of significant exchange rate movements," it said adding that group volumes from subsidiaries were 533 billion, up 2%, as a result of the acquisitions of ST, Tekel and Bentoel.

Organic volumes were 3% lower than last year as a result of a sharp decline in the low margin volumes acquired in the ST and Tekel transactions, which were included, on a comparable basis, for the first time in the third quarter, BAT said.

"The four Global Drive Brands had a good performance and achieved overall volume growth of 4%. Dunhill was up 6%, Lucky Strike 5% and Pall Mall grew by 9%; Kent volumes were 2% lower mainly driven by industry volume declines in its key markets," the group said.

BAT said its strong performance was achieved against deteriorating trading conditions, with industry volumes lower in a number of markets including Japan, Russia, Brazil, Italy and South Africa, as well as a decline in the premium segment in the third quarter.

"In some markets, particularly in Central and Eastern Europe, there was down-trading to illicit trade as a result of excise increases, affecting the low-price segment.

"The group continued to address its cost base and, amongst other initiatives, started the consultation process with a view to closing the Soeborg factory in Denmark," it said.

Paul Adams, BAT chief executive, said: "Our consumers are clearly finding the current economic conditions difficult, as unemployment continues to rise.

"This has led to a softening of our volumes, although I am encouraged by the growth in our Global Drive Brands and the strong growth in revenue."

BAT said it had sufficient financing and facilities available for the foreseeable future and at September 30, its guaranteed revolving credit facility of £1.75bn was undrawn.

"This facility acts as a backstop for the group's re-established euro commercial paper (ECP) programme (£1bn) of which  663m was outstanding on 30 September 2009," it concluded.

- I-Net Bridge